ACCCh.12

Question 1

An item readily convertible to a known amount of cash with a maturity to the investor of three months or less.

Answer 1

Cash equivalent

Question 2

For preparing the Operating Activities section of the statement of cash flows, the approach in which cash receipts and cash payments are reported.

Answer 2

Direct method

Question 3

Activities concerned with the raising and repaying of funds in the form of debt and equity.

Answer 3

Financing activities

Question 4

For preparing the Operating Activities section of the statement of cash flows, the approach in which net income is reconciled to net cash flow from operations.

Answer 4

Indirect method

Question 5

Activities concerned with the acquisition and disposal of long-term assets.

Answer 5

Investing activities

Question 6

Activities concerned with the acquisition and sale of products and services.

Answer 6

Operating activities

Question 7

The financial statement that summarizes an entity’s cash receipts and cash payments during the period from operating, investing, and financing activities.

Answer 7

Statement of cash flows

Question 8

Which of the following statements is true about the relationship between net income and cash flow?a. Cash will increase during a year in which a company reports net income. b. Net in come and cash flow are the same amount from year to year. c. Cash will decrease during a year in which a company reports a net loss. d. Cash can increase or decrease during a year in which a company reports net income.

Answer 8

Cash can increase or decrease during a year in which a company reports net income.

Question 9

Organic Foods Corp. reported the following information for 2012 and 2013.Accounts Payable, December 31, 2012 $51,000Accounts Payable, December 31, 2013 $46,000Purchases 2013 - - $467,000How much cash was paid for merchandise purchases during 2013?a. $467,000 b. $472,000 c. $421,000 d. $462,000

Answer 9

$472,000

Question 10

In preparing a statement of cash flows using the indirect method, what is the proper adjustment to net income for changes in the balances of current assets or liabilities?a. current assets - add the increase or subtract the decreasecurrent liabilities - add the increase or subtract the decrease b. current assets - add the decrease or subtract the increasecurrent liabilities - add the decrease or subtract the increase c. current assets - add the decrease or subtract the increasecurrent liabilities - add the increase or subtract the decrease d. current assets - add the increase or subtract the decreasecurrent liabilities - add the decrease or subtract the increase

Answer 10

current assets - add the decrease or subtract the increasecurrent liabilities - add the increase or subtract the decrease

Question 11

How is depreciation expense treated under the indirect method of preparing the statement of cash flows?a. As an addition to net income in the Operating Activities section of the statement. b. As an outflow in the Investing Activities section of the statement. c. Depreciation expense does not appear on the statement of cash flows when the indirect method is used. d. As an outflow in the Operating Activities section of the statement.

Answer 11

As an addition to net income in the Operating Activities section of the statement.

Question 12

The statement of cash flows must be classified into each of the following categories except for:a. operating activities. b. current activities. c. financing activities. d. investing activities.

Answer 12

current activities.

Question 13

The purchase of a three-year Treasury bill two months before its maturity is considered a:a. long-term investment. b. current liability. c. cash equivalent. d. short-term investment.

Answer 13

cash equivalent.

Question 14

How should the repurchase of a company’s own stock be reported on the statement of cash flows?a. As a financing activity b. As an operating activity c. Repurchase of a company’s own stock is not reported on the statement of cash flows. d. As an investing activity

Answer 14

As a financing activity

Question 15

An example of an operating activity is:a. the payment of a loan from a bank. b. a cash payment to suppliers of inventory. c. the purchase of a piece of equipment. d. the payment of cash dividends

Answer 15

a cash payment to suppliers of inventory.

Question 16

A company began the year with a balance of $5,000 in Accounts Receivable and ended the year with $8,000 in the account. Revenues for the period amounted to $37,000. Under the direct method of preparing the statement of cash flows, the company will report cash collected from customers of:a. $42,000 b. $40,000 c. $34,000 d. $37,000

Answer 16

$34,000

Question 17

What are the three categories into which cash flows are classified?a. Operating, investing, and financing b. Operating, investing, and producing c. Operating, nonoperating, and financing d. None of these choices are correct.

Answer 17

Operating, investing, and financing

Question 18

How is depreciation expense treated under the direct method of preparing the statement of cash flows?a. As an outflow in the Operating Activities section of the statement. b. As an addition to net income in the Operating Activities section of the statement. c. As an outflow in the Investing Activities section of the statement. d. Depreciation expense does not appear on the statement of cash flows when the direct method is used.

Answer 18

Depreciation expense does not appear on the statement of cash flows when the direct method is used.

Question 19

Which of the following statements is true about the indirect method?a. Many companies believe that the use of the indirect method reveals too much about their business by telling readers exactly the amount of cash receipts and cash payments from operations. b. If a company uses the indirect method, it must present a separate schedule to reconcile net income to net cash from operating activities. c. Advocates of the indirect method believe that the information provided with this approach is valuable in evaluating a company’s operating efficiency. d. If a company uses the indirect method, it must separately disclose two important cash payments: income taxes paid and interest paid.

Answer 19

If a company uses the indirect method, it must separately disclose two important cash payments: income taxes paid and interest paid.

Question 20

Cash flow per share is:a. the same as earnings per share. b. an acceptable alternative to earnings per share according to the accounting profession. c. computed by dividing cash on the balance sheet by the number of shares outstanding. d. not an acceptable alternative to earnings per share according to the accounting profession.

Answer 20

not an acceptable alternative to earnings per share according to the accounting profession.

Question 21

The following items were reported on the balance sheets and income statement for a service company:Accounts Payable, December 31, 2012 $64,000Accounts Payable, December 31, 2013 $48,000Operating Expenses - - $170,000What was the amount of cash paid for operating expenses in 2013?a. $154,000 b. $180,000 c. $170,000 d. $186,000

Answer 21

$186,000

Question 22

A firm’s beginning balance in retained earnings was $100 and its ending balance was $90. Net income for the period was $75. Dividends paid during the period:a. must have been $65. b. must have been $75. c. Cannot be determined from the information provided. d. must have been $85.

Answer 22

must have been $85.

Question 23

On the worksheet illustrated in this appendix, what should be the total of the Changes column?a. The same number as total assets b. The same number as net income c. A changes column does not appear on the worksheet d. Zero

Answer 23

Zero

Question 24

Planet & Co. reported net income for the current year. Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?a. cash dividends were paid to stockholders during the yearb. depreciation expense was recorded for the yearc. a bank loan was repaid during the yeard. equipment was purchased for cash during the year

Answer 24

depreciation expense was recorded for the year

Question 25

The statement of cash flowsa. along with the balance sheet and income statement is prepared on the accrual basis.b. along with the balance sheet and statement of retained earnings is dated as a specific year end datec. along with the balance sheet is used to analyze liquidityd. ties the balance sheet to the statement of retained earnings

Answer 25

along with the balance sheet is used to analyze liquidity

Question 26

Which of the following items is treated as a cash equivalent?a. commercial paper with a 6-month maturity when purchased and 4 months until maturity at the balance sheet dateb. investment in corporate stocks which management intends to sell within 3 months after the balance sheet datec. money market funds which can be obtained overnight from a bank or brokerage firmd. investments in corporate bonds which have 5 years until maturity when they are purchased

Answer 26

money market funds which can be obtained overnight from a bank or brokerage firm

Question 27

Cash flows from acquiring and selling products are classified asa. operating activitiesb. investing activitiesc. financing activitiesd. distribution activities

Answer 27

operating activities

Question 28

Cash flows from borrowing and paying off a 90-day bank loan are classified asa. operating activitiesb. investing activitiesc. financing activitiesd. distribution activities

Answer 28

financing activities

Question 29

Below are the transactions for the Louisville CompanyProceeds from issuance of bonds payable ~ $635,000Payment to purchase equipment ~ $275,000Payment of wages ~ $115,000Payment of dividends ~ $155,000Payment to pay off notes payable ~ $195,000Based on these transactions, what is the net cash flow from financing activities?a. $285,000 net cash provided by financing activitiesb. $275,000 net cash used for financing activitiesc. $0, because cash inflows equal cash outflows from financing activitiesd. $440,000 net cash provided by financing activities

Answer 29

$285,000 net cash provided by financing activities

Question 30

Which method of preparing the operating activities section of a statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?a. the direct methodb. the indirect methodc. both the direct and indirect methodsd. neither the direct method nor the indirect method

Answer 30

the indirect method

Question 31

The following items were reported on the balance sheets and income statement for Bezos Corp.Accounts payable, 12/31/15 $42,000Accounts payable, 12/31/16 $48,000Operating expenses $286,000How would the change in accounts payable be reported in the operating activities section of the statement of cash flows under the indirect method?a. as an addition to operating expensesb. as a deduction from operating expensesc. as an addition to net incomed. as a deduction from net income

Answer 31

as an addition to net income

Question 32

Which of the following is an addition to net income when the indirect method is used?a. an increase in inventoryb. a loss on sale of equipmentc. a decrease in accounts payabled. an increase in accounts receivable

Answer 32

a loss on sale of equipment

Question 33

Which of the following measures can be used to evaluate a company’s ability to meet future debt obligations after paying income taxes and interest and making capital expenditures?a. earnings per shareb. net incomec. cash flow adequacy ratiod. net increase or decrease in cash an cash equivalents

Answer 33

cash flow adequacy ratio